Hoegh Autoliners, a leading global provider of car carrier services, reported a strong second-quarter financial performance with a net profit of $174 million and an EBITDA of the same amount. CEO Andreas Enger highlighted the successful operation of the company's newest and eco-friendly vessel, Hoegh Aurora, and the acquisition of Hoegh Jacksonville. The company announced a significant quarterly dividend of $127 million, reflecting a confident stance in its financial stability and future prospects. CFO Per Øivind Rosmo outlined the company's healthy balance sheet, which includes a strong equity ratio of 65% and a robust liquidity reserve. The management emphasized their focus on long-term contracts and fleet renewal, with plans to introduce Ammonia-powered dual-fuel vessels by 2027.
Key Takeaways
- Hoegh Autoliners reported a net profit and EBITDA of $174 million each in Q2.
- The world's largest and most environmentally friendly car carrier, Hoegh Aurora, began operations.
- A quarterly dividend of $127 million was declared, indicating a strong financial position.
- The company took delivery of Hoegh Jacksonville and has a strong equity ratio of 65%.
- Future outlook remains positive, with the market expected to stay tight and a focus on long-term contracts.
- Plans to introduce Ammonia-powered dual-fuel vessels in 2027 were announced.
Company Outlook
- Market growth, particularly from China, and steady demand for High & Heavy cargo drive positive outlook.
- Capacity expansion with new vessel deliveries is underway.
- The company is committed to sustainability and fuel efficiency.
- Anticipated strong performance in Q3, with no specific guidance on net rate.
- A new dividend policy suggests increased shareholder returns compared to the previous year.
Bearish Highlights
- Despite a decrease in funds due to the purchase of Hoegh Jacksonville for $43 million, overall financial health remains strong.
- The market's volatility is acknowledged, but the company expects stability for the remainder of 2024.
Bullish Highlights
- The company is improving its contract portfolio and building backlog.
- Renewal of the fleet with environmentally friendly vessels is a priority.
- Management is focused on securing long-term contracts while maintaining some flexibility.
Misses
- No specific misses were reported in the earnings call.
Q&A Highlights
- The company plans to announce a dividend policy that reflects an unwillingness to accumulate cash.
- Progress towards 80% long-term contract coverage is on track, with increased customer willingness for longer contracts.
- Some profitable cargo is under shorter contracts, which the company does not want to give up.
- Flexibility in cargo backlog optimization due to new vessel construction.
- The distinction between spot and contract cargo is mostly about pricing and commitment.
- High vessel utilization is standard, with potential ballasting from Atlantic to Asia based on tonnage balance.
Full transcript - None (HOEGF) Q2 2024:
My Linh Vu: Good morning from Arendal and welcome to Hoegh Autoliners Second Quarter Presentation. My name is My Linh Vu, Head of Investor Relations. And with me today, we have our CEO, Andreas Enger; and our CFO, Per Øivind Rosmo, who will walk you through the last quarter business and financial update. If you have any questions, feel free to send an e-mail to our Investor Relations mailbox at ir@hoegh.com and we can read out the questions at the end of the presentation. And with that, I will leave the stage to you, Andreas.
Andreas Enger: Thank you. Yes. Welcome to today's presentation. And we're starting with this beautiful picture of Hoegh Aurora, the world's largest and most environmentally friendly car carrier. We had a great naming ceremony last week at the yard in China and the vessel has since then bunkered LNG and is loading cargo in Japan and is going to make a fantastic voyage back to Europe. So that's a big milestone for our company, is something we've worked for the last 3 or 4 years. And we're impressed with the results and very, very pleased that the program we laid out in 2021 in connection with our IPO has been executed flawlessly, and the vessel is now in operation, well ahead of original schedule. To the quarter, another good quarter for Hoegh Autoliners. We have an EBITDA of $174 million. And we happen to have a net profit also of $174 million due to some extraordinary items that Per Oivind will come back into. And a gross rate of $96, illustrating that the market is still at -- it's a very attractive level and coming back to our contracting activities also reflecting that. In line with our dividend policy, we have declaring a quarterly dividend of $127 million that will be paid during August. And then we have taken delivery of 1 purchased previously, bareboat chartered vessel, Hoegh Jacksonville, which is a modern efficient vessel part of our core fleet. Equity ratio, up 3% to 65%. And again, Per Oivind will explain to you a very strong and continuously strengthened balance sheet. We're going through the standard items. I'm going to talk about market-led touch on capacity and sustainability and Per Oivind will take us through the financials before we have an outlook and Q&A. And I mean one of the characteristics, I think, of this first half for Hoegh Autoliners is that with the Red Sea (NYSE:SE) situation and things we are -- we have a constraint on volume. In addition, we have, as you know, also sold a few of our older vessels. And the first one was delivered at the end of last year and is obviously impacting our capacity. But given the pricing of this vessel and the accelerated delivery on our new builds, we believe that's on balance a prudent portfolio management move. High & Heavy and Break-Bulk roughly constant, the net rates with a positive underlying trend now mostly driven by contract renewals and new contracts. Coming to new contracts. We have now signed what we call sort of new contracts with 4.6 million cubic meters weighted average of 4.3 years, very attractive rate levels. And we still have -- I mean we are in advanced processes with several contracts and we still have legacy contracts and annual volume of 3.8 million, up for renewal, most of it during 2024. And we are continuing to increase our contract coverage. And I want to make one comment on this, and that is we had quite an attractive result out of chasing opportunity in the spot market during the last 12 to 18 months. I think during this first half, we have a very, very clear strategy of where we're willing to give up short-term profits from potential opportunistic spot-trades by and rather allocate volume into long-term contracts. And that also includes new contracts, new counterparties and in order to further increase the resilience of our contract backlog and improve our customer and cargo portfolio. And we had good progress in that work, and I think we are continuously strengthening our contract portfolio. In the market, still steady growth, still driven by China. And China is further affirming-up its position as the leading vehicle exporter and it's also driving the market growth to large extent, but it's also interesting to see that it's not actually eating into the volumes from South Korea and Japan. So it creates an overall very strong volume position out of Asia. High & Heavy has been in terms of the global market volumes, slightly down this year due to, I think, inflationary and sort of effects on CapEx. It's projected to regain its growth. It is an important market segment. And we are introducing vessels with additional High & Heavy capacity and more cargo flexibility. So it's obviously an important market, and we believe there is a good outlook also for High & Heavy. On the capacity side, I think we're seeing now that new builds are -- deliveries and new builds have started. They're not at the level that, in our view, is fundamentally changing the capacity situation. But we are obviously very pleased with the first vessel that we have, Aurora class vessel now in operation and the next one that we will get in a little more than a month and then further 2 that are in advanced, I mean one of them is actually a floated yard, but will be delivered right at the beginning of 2025. So we are in a situation where we are getting new capacity into the system that both has allowed us to sell disposal of older vessels and is giving us capacity in a situation where the capacity market is still very tight. Sustainability. That is obviously an important part of our strategy. And with new builds and working into new fuels, we are, I think, at the verge of making real progress. But in this half year, we're still with our existing fleet is still biofuel and fuel efficiency measures that matters and we respond to that by continuously increasing our use of biofuel for customers, and we have good demand and are continuously increasing the use of biofuel. We have a preference for the 100% biofuel. That is totally clean, easy to explain. We're also for this quarter, for the first time, also bunkered some blend, which obviously also gives some effect. But also on the technical side, we have a very clear program on technical updates for fuel efficiency, which includes propellers, valves, additional technical upgrades. And we have installed substantial fuel efficiency upgrades on 6 vessels during Q2, and we have a further 9 on order. So in addition to taking delivery on world-class, extremely efficient zero-carbon ready vessels, we are obviously also working to improve fuel efficiency on our legacy vessel centers, good progress on that. That's my part of it, and Per Oivind will take you through the financials in some more detail.
Per Øivind Rosmo: Thank you, Andreas, and good morning, everyone here in Arendal and on the webcast. As Andreas mentioned, we had a recovery in volumes in second quarter compared to first quarter, that was expected. We had a lot of disturbances in the scheduling and routing of vessels early in the year, coming from the sudden situation where we had to reroute vessels through Cape. To some extent, that has been migrated, and we ended the quarter with 3.5 million CBM. Net rates compared to first quarter, more or less the same, we saw a small reduction from $83.6 per CBM to $83.2 million per CBM. And as we all know here, the top line is the driver for our EBITDA and profit. So it is important for us to follow these numbers. Second quarter results. We saw on the back of higher volumes, the freight revenues increased from $328 million to $341 million. That translated into an increase in the EBITDA from $162 million to $174 million. It is somewhat lower than what we had the previous quarters, but it's basically all coming from the reduction in volume. The rate has to a large extent migrated the reduction that we have had in volume. We are reporting a net profit before tax of $135 million. that is an increase from $113 million that we had in first quarter, and it's more or less exactly the same net profit that we had in second quarter last year. And bear in mind, again, that we have considerably less volume this quarter than second quarter last year. It's actually a reduction of 600,000 CBM from second quarter last year. It is the volume that is in a way limiting the upside here, comparing with the $199 million that we had in Q4, that was all-time record high for the company. You see here that the cargo revenue was reduced $54 million into the first quarter, and then we see a small uplift in the cargo revenues from first quarter to second quarter. Bunker expenses, positive development, plus $3 million, comparing to Q4 and other operating expenses, looking at the first half has actually been reduced with $12 million. Part of that is, of course, that we transport less volume that gives less handling costs and to some extent, also less car cost. So this basically follows from the reduction in the volumes. The balance sheet is still extremely strong and healthy. It's solid resilience now in the company. We have been focused on building resilience and that is still intact. Net interest-bearing debt, $354 million only, including lease liabilities, and we have a net interest-bearing debt-to-EBITDA ratio of 0.4 times. Book value of equity, again, well below 60%, 65%. It increased somewhat from first quarter, but it is more or less the same as we had in second quarter last year, $64 million. And we have been paying out substantial amounts in dividend over the last 12 months. The cash balance, we are targeting a cash balance by the end of the quarter of plus/minus $200 million. We ended the quarter with $195 million. And in addition to that, we have $204 million in undrawn revolving credit facility. So also cash-wise, we are well off also by the end of this quarter. The development in cash comparing to end of first quarter, we had $207 million. We generated $169 million from the operation, and we had CapEx of $65 million. A majority of that is yard installments related to the new buildings that accounts for approximately $50 million out of the $65 million. We had debt service of $18 million installments and interests, and we paid $109 million to the shareholders during the quarter, and we took new debt of $70 million. That was $50 million related to the purchase of one of the leased vessels that we had from Ocean Yield, Hoegh Jacksonville, and we also took $20 million related to 2 of the newbuildings that is actually pre-delivery financing given by the lease provider for 2 of the vessels. And we had lease payments and orders of $15 million, and we purchased Hoegh Jacksonville for $43 million. So that took us from $207 million to $195 million. And as I said, on top of that, liquidity reserve of $204 million in the form of untouched revolving credit facilities. Balance sheet, strong, as I said, equity ratio of 65% is a simple balance sheet. As we have mentioned before, we have vessels and newbuildings, $1.4 billion. We still have some vessels on leases that accounts for $119 million right-of-use assets. We are in the process of buying another 1 of the leased vessels, Hoegh Jeddah will be purchased in October and bunker and receivables, $182 million. And as I said, cash of $195 million, equity $1.2 billion and interest-bearing bank debt is $414 million by the end of the quarter. And then we have lease liabilities of $136 million and current liabilities of $120 million. So equity, $1.2 billion. If we take market value of the vessels instead of using book value, we calculate the net asset value or the value adjusted equity. And as you see here, that was calculated to $2.6 billion by the end of the quarter. That equals $13.5 or NOK145 per share compared to a book value per share of [NOK17]. Dividend, $127 million as well has been declared, and it will be paid out on or about August 28. And as you also see from this graph, the new dividend policy of distributing all free cash flow has increased the dividend considerably compared to the same period last year. A very strong quarter in a market that is somewhat more volatile than what we have seen is these disruptions. We are exposed for waiting. We have the Red Sea situation, but we are running all vessels with full of cargo, and we are to say that way, we are sold out, and we don't really expect that to change in the short-term future. Andreas will say a few words about outlook.
Andreas Enger: Thank you, Per Oivind. And again, that is -- I mean, I don't think this is changing very much from quarter-to-quarter. It's the same things that we've said. Supply remains tight, and we don't really see the newbuild delivery. They fill basically a shortage in the market, and it's not impacting the capacity situation as we see it, the time being. And we do not really expect the market to change significantly during the rest of 2024. We are continuing to be concerned in monitoring macro events. It's a complex geopolitical situation. But we are not really seeing that impacting cargo flows and our business now or in the immediate future. Obviously, the Red Sea situation is covered and that is consuming some capacity and is adding some costs and complexity. But that's, I think, now well-handled and is part of our normal operation really. And for Q3, we expect that to be another strong quarter, started well. And in the sense, ending up results broadly in line with Q2, but I think it's important to underpin given that we are reporting monthly volume and rate data that -- and in the current situation, both because we are now chasing longer-duration contracts and relationships rather than focusing on maximizing capturing short-term opportunities and vessel positioning and cargo mix that in our portfolio that you should expect volatility from month to month on those reports. And I think it's important to see a trend to actually have some kind of moving average because individual months says as much about our cargo mix and our positioning for the month as it does about the market development. But again, strong, strong outlook, strong market, and we really are in a situation that we basically say, on the top line on the financial side is relatively stable for the time being. And as I said, we are continuing to improve our contract portfolio in continuing to build backlog. And we're obviously continuing to renew our fleet and also now have now made is maybe not a surprise to those who are following us, but have made a decision that we will take delivery on Ammonia-powered dual-fuel vessels in 2027. So we are making good progress on financials, good progress on cargo, and we are also making good progress on our sustainability agenda. So that's all for us. And then I think we'll leave it to the audience to ask questions.
A - My Linh Vu: Yes. We have received a few questions from our audience in the meantime. And I guess the first question actually about outlook, from analyst, Jorgen Lian, DNB. So about the guiding for Q3 in line Q2, and given the uplift for the contract rates, does that imply any sly in the spot rates. I get you already mentioned that there's actually cargo mix and the positions that can explain the volatility in the rates from month to month. But I guess do you want to say anything more?
Andreas Enger: I think we said in many ways that the spot spot market probably peaked last year. But I think the volatility and the things as you see it, is also that if you look at the cargo mix, we still have legacy cargo. And I think what you also see is that there is a fundamental picture in there that because of the overall capacity situation, West belt cargo is paying better than East belt cargo, which means that the fleet positioning actually has impact on a monthly basis. And if you look into the last 18 months, there's been basically a continuous upward trend on the rate levels. And I think we've said several times now that we are not really chasing higher rates now. We're chasing longer duration. And I think that has an impact. And we're also eager to enter into firm contracts, which we are in what we call the return trades East belt even if that might be at some point diluted to our rates. So it's a complicated picture, but our view on the outlook is that the rate picture is now fairly stable and that we are entering contracts on terms that reflects the current market rates and that those contracts have duration that increases the resilience of our cargo portfolio. So we are quite pleased, but it's also clear that we are in a much more, call it, stable market environment than we have if you compare to a year back, where there was a strong upward pressure on rates. And it's more the sort of rollover of contracts that drives development.
My Linh Vu: And the next question also from Jorgen Lian and another investor and a few other investors actually, a little bit deeper about the contract renewal and the rates. So we mentioned that the average rate for the renewed contracts around on average of $100 per CBM. Should they have any more expectation about the further development of the monthly rates that we published on the money trading updates. I guess, Andreas already mentioned that we have seen upward trending development at the rates over the last 18 months, but there's anything else we should -- you want to comment about that?
Per Øivind Rosmo: We have said that we will expect some more volatility from month to month. But I guess, broadly, we are working to develop our contract portfolio to extend the duration and the robustness of the current rate level and balancing our system to create a good platform for attractive earnings and efficient trade system for the years to come. That's really where our focus is for timing.
Andreas Enger: Yes. I think I can just add that we are increasing the contract portfolio share of the total volume that we left and that has coincidence with an increase in the average net rate over the last 12 months. And we are still in a situation that when we renew contracts or enter into new contracts or replace legacy contracts with new contracts, we are still getting, I would say, considerably higher rates than what we leave behind us. So that dynamic is still there. But of course, as we also increased the contract share, we reduce, to some extent, our exposure to the spot market. But that dynamic is not straightforward. And then you mentioned $100 on average. That is the situation what we have done historically that, that is not necessarily how it will be going forward. We are not renewing all contracts above $100 per CBM.
Per Øivind Rosmo: But I also want to emphasize the fact that you've seen we have a steady, we have a regular uptick in our contract share, right? And that means that we are not only renewing rolling over contracts from lower rate to higher rates. We are also, to a large extent, taking our spot market exposure and transforming into contracts. And those 2 obviously have different dynamics. While the rollover of legacy contracts at low rates is definitely increasing the rate, but the spot to contract does not have the same effects. And we have a large share of that in our portfolio now in terms of contracts. And we are very, very satisfied with that because that is, in our view, fundamentally improving our backlog quality. But it doesn't transform into immediate rate upticks.
My Linh Vu: And the next question is on contract renewals. We say annualized volume of 3.8 million CBM. So just to be clear, is this translate to roughly 1.9 million of renewal in the second half of 2024. So for this question, I can just answer. What we mean is that we have a legacy annualized volume of 3.8 million CBM up for renewal towards the end of 2024. The next question. The contract share see up to 75% from 70%. But at the same time, we mentioned that we lost around 5% of capacity due to Red Sea disruptions. So in the case that the Red Sea opening again, should we expect another increase of around 5% in the spot business or how would that translate into our spot contract cargo mix in the case of Red Sea opening again.
Per Øivind Rosmo: If the situation changed suddenly, unless you can start going there from tomorrow, you could expect that, that will have some impact on the ratio between contract and spot cargo. But I still think that we will still be above 70% on contract cargo. We have a pressure. It is more cargo out there than we can accommodate for. And to some extent, we are also pushing cargo in front of the West. So I don't think the ratio will change that much if we get that additional capacity available overnight. It will be more or less the same ratio as we have seen lately.
My Linh Vu: And the next question from a private investor is about vessel sales and expected dividends. Is it still the plan to sell cheaper in Q3 and with Kobe has been already delivered in July. So what should we expect about the dividend before Q3?
Andreas Enger: I mean, first, [indiscernible] has been sold, right? It's a firm contract deposit paid and we are delivering it this month. So that will happen. And I think we have said we have a dividend policy. I don't think we will guide much more specific on that, but we are not intending to accumulate cash. And I think that answers most of it. And we're coming back with the exact timing of that.
My Linh Vu: The next question is from analyst, Erik Hovi in Nordea. The first question is about the contract renewal negotiations. So looking at your progress towards the 80% long-term contract coverage, are there any change in the sentiment from counterparties and overall negotiations when it comes to rate durations and market?
Andreas Enger: And I would say broadly no, in the sense that I'm on the view from what we're seeing from customers that our shipping segment has become more industrial. I mean the customers have seen the pain of instability in their logistics system. So we are working with customers, and our feeling is, number one, that the market level is firm when it comes to rates. And the other is that actually, customers' acceptance, even appetite for longer duration is improving, and that goes particularly for the larger customers and the larger flows where shift changing -- it's also a need from their customers to have stability in the setup for their large volume flows. So we believe both rate-wise and duration-wise, for us, we see the market situation and our customer dialog is quite supportive to what…
Per Øivind Rosmo: To add, customers seem to be focusing on the transport security and are willing to enter into long-term contracts to secure the transport capacity for the years to come.
My Linh Vu: And the next question is that we have communicated that 80% contract is a target we are looking for. So are we also looking to increase this target to over 80%, if there's appetite or --
Andreas Enger: I mean I think we are saying, firstly, I have said that as a target. I think we believe that some flexibility in the system is also important for the product quality. So I don't think we believe that running 100 -- because there are changes, variation in customer needs, there are disruptions in the system. So we believe we are delivering a stronger product to our customers by not being 100% committed because being 100% committed basically means that any disruption in the world means that you're not able to deliver on your commitments.
Per Øivind Rosmo: And adding to that, we also have some very profitable cargo that we don't have under longer contracts, but that we have with trade forwarders and others. And that is cargo that we most likely like to keep to increase the contract ratio to 100%, giving up that cargo is most likely something we will not do.
My Linh Vu: And the next set of questions from analyst, Petter Haugen, ABGSC. And the first question is a further deep dive into the outlook. So we wrote that expected Q3 to be another strong quarter with results more or less in line with Q2. We see it's difficult to square with the highest rate on record from July trading update. So can we expect the net rate to decline in August and September. So I guess what we have already communicated is that we expect some volatility in the net rate given the positions and the cargo mix. But we are not going to comment more specifically about the net rate and so we come up with the trading update. Next questions. Could you guide anything about the [indiscernible] contract base that come up for renewal in the next 2 years, 2025 or 2026.
Andreas Enger: I mean that's smaller volumes, given that we have -- if you look at the ratio and the volume we have, I think we're entering into -- I mean we still have what we call legacy contracts going into 2025, but it's not a huge volume.
Per Øivind Rosmo: It is a huge volume, but there is volume that we can renew also in 2025 that could -- and will contribute positive to the rate if the market stays more or less as it is now.
Andreas Enger: But I also think the fact that obviously, we are trying to balance this out, and we have divested some vessels. But it's great to see. We have 6 vessels under construction at the yard. 4 of them, I mean, including the 1 delivered in advanced stage and which looks like a vessel, 3 of them actually are floating. So we are getting new capacity, and we have some flexibility given that we did place some early orders and have a stream of newbuilds coming over the next year, which is giving us some flexibility. And for that, we've also been seeking to commit capacity to customers that we believe have a prospect for an increase in cargo volumes and those types of things. So we're obviously working on using the position we have, using the market as it is to try to optimize our cargo backlog relative to our capacity situation, which actually includes some growth in capacity over the next year.
My Linh Vu: And the next question, what is the current share capacity trading spot or share of total capacity? Are we planning to change spot in 2025 and 2026. So I guess, this year, we mentioned that…
Andreas Enger: I mean we said -- but I think also we have, I think as Per Oivind alluded to, I mean, the notion spot and contract is not an entirely clear distinction because we have, as you say, we have liner cargo parts of things that are in our world, technically spots but are recurring cargo. But so when we're talking spot contract, it's more about the commitment. On the contract, what we call contracts, we are basically seeking a much and getting a much higher degree of mutual commitment where we are formally financially committing space to customers, and they are formally and financially committing cargo to us. So I think that distinction is -- I mean, most of our cargo comes out of some kind of relationship and a lot of what we call spot cargo has some written agreement behind it. So for us, this is mostly a pricing thing.
Per Øivind Rosmo: It's a pricing thing and a commitment thing. We can reprice that cargo on an ongoing basis, and we don't really have the commitment to take it. But we are working with customers and freight forwarders and others that we have been working with for many, many years. So spot cargo is not cargo that we have to fight for every day. It is a regular cargo, but we are not committed and we can reprice more frequently. And that is cargo we like to have actually.
My Linh Vu: And the next question from an audience, is about the utilization on our backlog trait. So could you comment about the utilization on our vessels on the East Belt routes?
Andreas Enger: The utilization on our vessel is always high. It's a lot of expenses involve taking a vessel around the globe. So we always have high utilization. So the simple answer to that is that vessels are always full. But in some cases, if we have an unbalanced situation when it comes to tonnage, we might choose to ballast vessel from Atlantic to Asia. And to some extent, we do that. But we don't have a systematic model where we balance. This is decisions that we take from basically month-to-month, but we are utilization-wise, we are always full.
Per Øivind Rosmo: Yeah. So you're saying East Belt vessels are either going full or empty and most of them are going forward. That's kind of the situation.
Andreas Enger: Yes.
My Linh Vu: This is the last question we receive from our audience. Thank you very much for the engagement. And if you have more questions, feel free to send a question to our Investor Relations mailbox at ir@hoegh.com. Thank you very much for your attention, and we see you next time.
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